Drewry: Panamax containership surplus a growing problem

A surplus of Panamax-sized containerships, already a creating problems for liner companies in the North-South trades where they are helping drive down rates, is likely to get worse when the larger Panama Canal locks are opened at the end of 2015, says the London-based consulting firm Drewry in the latest issue of its Container Insight Weekly.
The surplus of Panamax ships is reflected in charter rates as measured by the Hamburg Shipbrokers Association’s New ConTex index, where the daily charter rate for ships was at $9,218 per day on April 24, compared to $13,639 per day on April 23, 2012.
Drewry said by keeping charter rates low, it is becoming easier for competing carriers to penetrate North-South markets more deeply, regardless of need. It predicted this will become an even bigger problem when many more of these Panamax vessels will become surplus as carriers replace them with larger, more cost-effective ships on routes using the Panama Canal.
Drewry highlighted MSC's decision to start-up this month a new "Africa Express" service between Asia and West Africa, which Drewry said will use 10 ships with an average capacity of 4,000 TEU, as an example of a new North-South service using Panamax tonnage.
Drewry said there are 635 container ships of about Panamax size, with capacity of between 4,000 TEU and 4,999 TEU. About 377 are currently employed on routes not passing through the Panama Canal or are currently laid up. About 258 are on services that use the Panama Canal. The transfer of just a small proportion of the remaining 258 vessels currently using the Panama Canal into the North-South trades “would cause a shock to the system.”
“In this respect, the progressively delayed expansion of the Panama Canal — from mid-2014 to end 2015 — has given North-South routes a welcome reprieve, even though it has cost Panama Canal users dearly," Drewry analysts wrote.
Drewry said some surplus Panamax ships are likely to be scrapped, noting that 19 vessels between 4,000 TEU and 5,000 TEU were already scrapped in the first three months of this year, compared to just seven in all of 2013. Scrapping will be a tough decision for some owners to make because 232 of the Panamax ships are five years old or less; another 234 are between six and 11 years of age.
“As many ships will be depreciated over 15 to 20 years, this means that much book value will have to be destroyed, which many shareholders will find hard to accept," the analysts wrote. "Some owners will be looking to re-engine the youngest vessels, therefore, or even jumbo-ize them.”